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Monday, June 20, 2016

CBN kick-starts flexible exchange rate today

HISTORY will be made today as the Central Bank of Nige­ria (CBN) finally commences the much-awaited market-driven flexible exchange rate regime to ease the foreign ex­change (forex) scarcity in the country.

This is coming on the heels of various endorsements given to the policy by finan­cial analysts who see it as the final solution to the volatility in the forex market.

However, indications have emerged that the apex bank has thrown the door open to other banks to participate, even if they do not meet the criteria as a systemically im­portant banks.

The apex bank had speci­fied in the initial guidelines that those to serve as the bulk traders, dealing directly with CBN, would have 40 per cent liquidity ratio, N200 billion shareholders’ funds and N400 billion foreign cur­rency assets for qualification as Foreign Exchange Primary Dealer (FXPD).

The reviewed guidelines state: “In order to further deepen the FX market, the Central Bank of Nigeria has decided to allow any Autho­rised Dealer who is inter­ested in acting as a Foreign Exchange Primary Dealer (FXPD) to apply even if the said Authorised Dealer did not meet the quantitative criteria stated in the CBN Guidelines for Primary Deal­ership in Foreign Exchange Products released on June 15, 2016.

“The Central Bank of Ni­geria shall evaluate all the first set of registered FXPDs by December 31, 2016. The evaluation shall cover both quantitative and qualitative Foreign Currency Balance Sheet, adequacy of Pre-Set­tlement Risk (PSR) lines for other Authorised Dealers, etc. Please note also that the performance and market conduct of the FXPDs in their dealings with the CBN shall be a major factor in the said evaluation.”

Meanwhile, appraising the new policy, Mr Dapo Ad­ekoje, the first Vice President of the Chartered Institute of Stockbrokers(CIS), assured investors that uncertainty, which characterized the investment climate, would soon disappear completely.

According to him, the new policy had been endorsed by the International Monetary Fund (IMF) and there are strong indications that the new development would en­hance efficiency in the man­agement of the exchange rate with multiplier effect on the capital market.

Also, the President of the institute, Mr Oluwaseyi Abe, explained that the coast is now clear for the investors to shore-up their holdings. “I feel it is even the best time to invest in the capital mar­ket because the economy is now on the steady path of re­bound.”, Abe said.

Toeing the same line , Mr Victor Ogiemwonyi, the Managing Director of Part­nership Investments Lim­ited, said that the capital mar­ket would find favour under the new regime as most of the money trapped in forex speculation would now be free to buy equities. ‘Foreign investors who are assured of free entry and free exit will want to take advantage of the low prices in the market now,” he added.